New Funding Source for City Streets

The League of Minnesota Cities will ask the 2014 Legislature to pass a bill that would authorize cities to implement street improvement districts.

This legislation has been a priority for cities for several years, and last session, it cleared all policy and finance committees. It is currently parked in the Taxes committees of both the House and Senate.

Rationale for new funding source Faced with budget challenges, some cities have made the difficult decision in recent years to delay scheduled street improvement projects. Maintenance projects, such as seal coating and overlays, can prolong a street’s lifecycle 50 to 60 years. Without ongoing maintenance, the average life expectancy of local streets is 25 to 30 years. Every $1 spent on maintenance saves $7 in repairs. But this maintenance requires a reliable dedicated funding source other than the volatile property tax system.

Cities are also falling behind on the reconstruction projects necessary to help keep property values stable. In addition, cities lack viable options for building new transportation infrastructure to attract and retain the investments by businesses that keep Minnesota’s economy strong.

Existing funding mechanisms for street maintenance and reconstruction are inadequate. Property tax dollars are generally not dedicated and are sometimes diverted to more pressing needs.

Special assessments can be onerous to property owners and are difficult to implement for some cities. Special assessments are not always useful for funding collector streets and other streets that do not abut private property.

Municipal state aid (MSA) is limited to cities with populations Photo courtesy of MnDOTover 5,000—147 of 853 cities in Minnesota—and cannot be applied to more than 20 percent of an MSA city’s lane miles. Existing MSA is not keeping up with the needs of the MSA system.

Facts about the proposal The League-sponsored legislation for street improvement district authority would provide a funding mechanism that is fair. It establishes a clear relationship between who pays fees and where projects occur, but stops short of the benefit test that sometimes makes special assessments vulnerable to legal challenges. It also does not prohibit cities from collecting fees from tax-exempt properties within a street improvement district.

This tool would allow cities to perform maintenance and reconstruction on schedule—which is essential to preserving streets and protecting taxpayer investments. It would also allow property owners to fund expensive projects by paying relatively small fees over time. It could be used to mitigate or eliminate the need for special assessments.

The proposal is enabling legislation. It does not require any city to create a municipal street improvement district. The legislation is modeled after Minnesota Statutes, section 435.44, which allows cities to establish sidewalk improvement districts.

To learn more about the legislation and how you can help with this effort, visit www.lmc.org/sid.